Price gouging as neighbor love

One of the unexpected hardships with which Superstorm Sandy assaulted Long Island, N.Y., was gas lines the likes of which we have not seen since the energy crisis of the 1970s. People were lined up—not only in their cars but also on foot with gas cans—from four to six hours, and with no guarantee of there being any gas left when they got to the head of the line. (My family lives on Long Island and we simply didn’t go anywhere and were fine.) The power cut meant that many gas pumps could not operate. But because of supply problems to the island, many stations that did have power had no gas.

Under these conditions, one would expect the price of gas to shoot up. When supply restricts but demand remains constant or even increases, prices naturally rise. But gas prices went up only slightly from $3.89 a gallon to $4.29 because state law forbids anything more than a 10 percent price increase at the pump during a shortage. But while our guardians of the common good meant well in making that law, I think their kindness was cruel.

The market system of setting prices serves everyone. It efficiency allocates resources in response to the relative value people place on goods. That is, it sets prices based on an inconceivably complex network of data that no single human institution could take into account.

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Why does a shortage of anything merit government-enforced price controls? There is always a shortage of some sort insofar as there is generally less of things than we would like. And yet we do not give government the responsibility for capping prices. Communist countries tried it and it failed. Artificially imposed price controls that attempt to fight market forces simply produce supply shortages. They also give us black markets where the price-supervised goods can be readily obtained at market prices.

I saw this in the Long Island gas lines. People were filling their red cans at the price-controlled rate (around $4 a gallon) and selling it at end of the line for something closer to a market rate ($8 a gallon). And, under the circumstances, people were happy to pay it.

If gas stations had been able to raise their prices to reflect the radically reduced supply, lines would have been shorter and so there would have been easier access to gas supplies for those most in need of it. But instead, with supply tight and prices the same as they were before the storm, panicky people were joining the lines when they didn’t have to. So lines lengthened with frivolous buyers who had nothing to lose but their time. People whose need was more dire—getting to work, running life-support equipment with a generator (as one of my neighbors was)—faced longer lines. Those more needy people would gladly have paid twice the price for shorter lines and more predictable access.

What some call “price gouging” might just as well be called “crisis market pricing” or even “neighbor love.”

D.C. Innes

D.C. is associate professor of politics at The King's College in New York City and co-author of Left, Right, and Christ: Evangelical Faith in Politics (Russell Media). Follow D.C. on Twitter @DCInnes1.